ADECA – Renewal Communities

The Renewal Community program, created by Congress in 2000, provides federal income tax incentives to businesses that are located or will locate in designated areas. Three of the nation’s 40 Renewal Community areas are in Alabama. The sites include the Greene and Sumter Renewal Community, made up of both counties, the Mobile Renewal Community, which includes Prichard and a section of east Mobile, and the Southern Alabama Renewal Community, which includes Wilcox County and parts of Butler, Conecuh, Dallas, Hale, Lowndes, Marengo, Monroe, and Perry Counties.

Overview of the Tax Benefits

The Community Renewal Act creates four tax incentives that reward businesses operating in a designated Renewal Community (RC) that employ community residents and invest in plant and equipment, as well as taxpayers investing in such businesses. These incentives apply to qualifying events from January 1, 2002, through December 31, 2009, although some benefits may be realized later if the qualifying investment occurred during this period. The tax incentives consist of the following:

Employment tax credit. A $1,500 maximum tax credit per employee, available to any business with qualifying employees living and working in the RC.Commercial revitalization deduction. A vastly accelerated deduction for new commercial building or substantial rehabilitation of an existing building in the RC. It may be available to any business in the RC, but deductions are allocated by a state agency.Enhanced IRC section 179 deduction. An additional $35,000 accelerated deduction for newly acquired qualifying property, available to a qualifying RC business only.Exclusion of capital gain. An exclusion of qualified gain on the sale of stock or a partnership interest in a qualifying RC business or on the capital gain on the sale of a qualifying RC business asset, subject to a five-year holding period and various criteria regarding acquisition and use.The employment credit and the commercial revitalization deduction are available to any business in the RC meeting the criteria of the specific benefit.

The enhanced section 179 deduction and the capital gain exclusion apply only to “qualifying RC businesses” or their investors. See publication 954

Certain businesses are disqualified from the four RC tax benefits because of their line of business: golf courses, country clubs, massage parlors, hot tub facilities, tanning salons, racetrack or gambling facilities, and liquor stores.

The Renewal Communities

In fiscal year 2005, the Southern Alabama Renewal Community expanded to include Monroeville, and areas in Butler, Conecuh and Marengo counties. Inclusion in the program will help Monroeville as it continues recovering from the substantial reduction of Vanity Fair operations during the 1990s, which resulted in the loss of hundreds of textile jobs.